Exchange Rates and International Trade
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Questions and Answers

What is the likely effect on the Mexican peso if there are improvements in production technology leading to increased guitar sales?

  • The peso will depreciate due to higher exports
  • The peso will depreciate because of oversupply
  • The peso will appreciate due to increased demand (correct)
  • The peso will remain stable with no significant changes
  • If perceptions of political instability decrease demand for pesos, what will happen to the peso?

  • It will stabilize to a neutral value
  • It will appreciate in value
  • It will depreciate in value (correct)
  • It will increase in supply without price change
  • What was the figure for the exchange rate of the Japanese yen to the U.S dollar on a Wednesday?

  • $0.014 (correct)
  • $0.013
  • $0.011
  • $0.012
  • If the dollar depreciated at an exchange rate of $0.011 on Thursday compared to $0.014 on Wednesday, what does this indicate?

    <p>The dollar got weaker</p> Signup and view all the answers

    How much does each Louisville Slugger baseball bat cost?

    <p>$49</p> Signup and view all the answers

    What is the exchange rate from dollars to British pounds if $1.43 equals £1.00?

    <p>0.70</p> Signup and view all the answers

    In order to purchase 12,000 baseball bats at $49 each, what is the total amount in dollars needed?

    <p>$588,000</p> Signup and view all the answers

    When converting $588,000 to pounds at an exchange rate of $1.43 per pound, how many pounds are needed?

    <p>£411,189</p> Signup and view all the answers

    What is the main reason that a perception of political instability can lead to depreciation of the peso?

    <p>International investors pulling out their financial capital</p> Signup and view all the answers

    What is the result of financial capital being pulled out of Mexico in response to political instability?

    <p>Increased supply of pesos in the market</p> Signup and view all the answers

    What is the primary end-goal of economic activity?

    <p>Consumption of goods and services</p> Signup and view all the answers

    Which statement best describes the concept of comparative advantage?

    <p>One country can produce goods more efficiently than another country.</p> Signup and view all the answers

    What is one reason for opposition to international trade?

    <p>Dislike of competition and its implications.</p> Signup and view all the answers

    Which concept refers to a country being able to produce a good with fewer resources than another country?

    <p>Absolute advantage</p> Signup and view all the answers

    What does Adam Smith suggest regarding the importance of defense versus luxury?

    <p>Defense is more important than opulence.</p> Signup and view all the answers

    What can be concluded about the essence of competition according to the provided content?

    <p>Competition fosters innovation and improvement.</p> Signup and view all the answers

    When considering consumption, which of the following goals is NOT mentioned?

    <p>Consume more at a lower price</p> Signup and view all the answers

    How does increased demand for the dollar relate to international trade?

    <p>It can affect the supply of other currencies.</p> Signup and view all the answers

    Why is competition viewed as positive in economic activities?

    <p>It leads to the emergence of better ideas and products.</p> Signup and view all the answers

    What is an implication of higher consumption due to price reductions?

    <p>More resources can be allocated to other needs.</p> Signup and view all the answers

    Study Notes

    Exchange Rates and International Trade

    • Exchange rates between the Japanese yen and the US dollar shifted from $0.014 to $0.011, indicating an appreciation of the dollar against the yen.
    • Improvements in Mexican production technology, resulting in superior guitars, increased demand for pesos, causing the peso to appreciate.
    • Political instability concerns surrounding Mexican elections decreased demand for pesos, leading to depreciation. Investors unloading pesos increased the supply, further contributing to the depreciation.
    • The cost of a baseball bat is $49. The exchange rate is $1.43 = £1.00. To purchase 12,000 bats, the London government needs £411,189. The calculation assumes the local government wants the bats. The local government's needs are defined in the local currency.
    • A higher demand for a currency will cause that currency to appreciate. A higher supply of a currency will cause that currency to depreciate.
    • The end goal of economic activity is consumption. This is not considered greedy. The goal is to consume better goods and services such as education, and health.

    Comparative Advantage

    • Countries have varying levels of production capability. This can be compared in terms of production outcomes.
    • One country may have a comparative advantage over another in producing a specific good or service because of lower opportunity costs or efficiency.
    • International trade occurs when countries exchange goods or services based on comparative advantage. Determining which country, in relation to another, has the best outcome.
    • Examples include Costa Rica in bananas, and the U.S. in corn, these are examples where the countries have comparative advantages.
    • A country can have an absolute advantage if it can produce a product using fewer resources than other countries. This is distinct yet conceptually related to the concept of comparative advantage.

    International Trade - Comments

    • Free trade proponents dislike competition, this does not mean it's unethical or immoral, but often self-interest.
    • Competition leads to better products, ideas, and service developments.
    • The topic of national defense and self-sufficiency remains relevant as well, making economic policy a complicated area.

    More from Adam Smith

    • "Individual ambition serves the common good."
    • "Every man lives by exchanging."
    • "Man is an animal that makes bargains; no other animal does this—no dog exchanges bones with another."

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    Description

    Explore the dynamics of exchange rates and their impact on international trade in this quiz. Learn how currency appreciation and depreciation can affect economies, with real-world examples involving the US dollar, Japanese yen, and Mexican peso. Test your knowledge on the factors influencing currency values and trade transactions.

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